Vanguard’s foray into the active UK equity space could struggle to attract client flows as confidence in the asset class at an all-time low and investors are reeling from the implosion of Woodford Equity Income.
Vanguard announced on Tuesday morning the Active UK Equity Fund would be added to its nine-fund strong active range. The sub-advised mandate, run 50/50 by Marathon Asset Management and Baillie Gifford, targets UK growth companies and is around 30 basis points cheaper than the average UK equity fund at 45bps.
But the announcement was overshadowed by news that Neil Woodford was fired from his flagship equity income strategy. He has since made the “highly painful” decision to close his investment boutique.
Contagion effect off Woodford on UK equity funds
Chelsea Financial Services managing director Darius McDermott said the Woodford saga would dampen interest in UK equity funds like Vanguard’s.
“I think the Woodford saga has done our industry no favours at all,” said Chelsea Financial Services managing director Darius McDermott, adding the debacle has left a “question mark on active management” at a time when client trust is already on shaky ground.
UK equities has consistently been one of the worst selling asset classes this year with retail investors pulling £1.9bn in July and August combined.
AJ Bell head of active portfolios Ryan Hughes identified Brexit as the biggest impediment to improving sentiment in the UK. But he said “there’s no getting away from the fact that the Woodford issues have dented confidence in investment full stop”.
“And I’m sure for a little while there will be some contagion across everybody which is sad and that’s disappointing because people still need to invest and they need to invest for the long term and for many people the UK will be a very sensible place to do that.”
Vanguard could revive tarnished reputation of active management
However some commentators were convinced that Vanguard might be able to resuscitate active management’s tarnished reputation by championing long-term investing and low fees.
“Whilst active management is in the spotlight for all the wrong reasons, Vanguard have put it in the spot light for the right reasons – lower fees and if they can do it why can’t others?” asked Willis Owen head of personal investing Adrian Lowcock.
Hughes noted that while Vanguard is chiefly known in the UK as a passives house it is also a huge active manager.
The fact it selected managers like Baillie Gifford and Marathon, that are known for their long-term approach to investing, to jointly run its UK equity mandate is another encouraging sign.
“Absolutely someone like Vanguard with those principles can do a lot of good for showing the benefit of active management,” he said.
